NEW$ & VIEW$ (10 MAY 2013)

Housing Rebound Grows as Prices Climb Sharply

Home prices in metropolitan areas saw their biggest year-over-year gains in more than seven years in the first quarter, evidence that the housing recovery is spreading across the nation.

imageThe National Association of Realtors said Thursday that the national median closing price for an existing single-family house was $176,600 in the first quarter, up 11.3% from the first quarter of 2012. That was the largest year-over-year gain since the end of 2005. Of the 150 metro areas tracked by the NAR, sale prices rose in 133 and declined in 17.

“The supply/demand balance is clearly tilted toward sellers in a good portion of the country,” said NAR chief economist Lawrence Yun.

Poor Weather Pressures Retailers

U.S. retailers continued to be stymied by cool weather, leading to generally lukewarm same-store sales for April.

The retail industry has now marked its fiscal first quarter—February, March and April—weighed down by temperatures that kept shoppers away from malls, forcing steep discounts.

The showing doesn’t bode well for the first-quarter results retailers will release later this month.

Jobless Claims in U.S. Unexpectedly Fall to Five-Year Low

Applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the fewest since January 2008, Labor Department figures showed today. The four-week average declined to 336,750, the lowest since November 2007, the month before the start of the worst economic slump since the Great Depression.

(Bespoke Investment)

Midwest leads US manufacturing revival
Jobs increase fuelled by resurgent car industry

The bulk of US manufacturing jobs gained since the labour market troughed three years ago have been concentrated in a handful of rust belt states, a positive sign for a region that has long seen employers flee for far-flung markets with lower labour costs.

Fuelled by a resurgent car industry, states such as Michigan, Illinois, Indiana, Ohio and Wisconsin, along with Tennessee and Kentucky, account for more than half of the more than 500,000 manufacturing jobs the US gained between March 2010 and March 2013, labour department statistics show. (…)

Mr Syverson estimates that 123,000 of the half million net new manufacturing jobs gained since early 2010 are directly attributable to the recovery of the auto industry, boosted by a government bailout and renegotiated labour contracts between the industry and the United Automobile Workers union. The rest have predominantly come from the machinery and fabricated metals sectors, producing for the domestic market as well as for export.

Fuelled by the car industry

Pointing up  Nice, but:

  1. Car sales seem to have stalled;
  2. Import share may be bottoming (read on Yen below)


Yen’s Slide Percolates Japanese Economy  The yen’s fall fuels hopes for a more ground breaking shift in Japan: the reversal of nearly two decades of stagnation, weak demand and declining prices.

Just over a month after Japan’s central bank vowed to reignite economic growth by flooding markets with yen, the currency fell to ¥100 to the dollar for the first time in four years, a milestone in efforts to end nearly two decades of economic stagnation.

The weaker yen’s impact—the dollar has climbed 16% against the currency this year—is already trickling through the Japanese economy, pushing up prices of imported food and gas and drawing a flood of tourists whose currencies now buy more goods in Japan. It is bolstering sales and profit at exporters whose goods can be produced at lower prices for global markets. Early Friday in Tokyo, the dollar bought ¥101.12, compared with ¥100.60 late Thursday in New York and ¥99.02 late Wednesday. (…)

In new signs of the impact of Abenomics, Japanese domestic institutional money started flowing overseas in pursuit of higher yields while bank lending rose at the fastest pace in four years, data released Friday showed.

Japanese investors bought Y514.3 billion more foreign bonds than they sold for the two weeks through May 4, government data showed. Such flows could weaken the yen further, and are a key part of the Bank of Japan’s strategy for beating deflation by getting some of the trillions of yen Japanese investors have stashed in low-yielding government bonds put to better use.

In a sign that domestic economic activity may also be picking up, Japanese bank lending rose 2.1% in April from a year earlier as big banks extended loans to utilities, and for mergers and real-estate related transactions, the BOJ said. (…)

But there are many “buts”. Is this a zero sum game or not?

Yen weakens past 100 to dollar, may fan talk of currency war

Japan investors switch into foreign bonds
Yen extends slide against dollar beyond Y100


Japan Data Suggest Strengthening

Official figures released Friday showed bank lending in April up 2.1% from a year earlier, the largest percentage gain since July 2009. Separate data showed the country’s current account, the broadest measure of trade with the rest of the world, stood at ¥1.25 trillion ($12.4 billion) in March before seasonal adjustment, the largest surplus in the last 12 months, despite a sharply wider trade-deficit component.

The BOJ said Friday that outstanding loans at Japanese banks, excluding locally operated credit unions, rose to ¥405 trillion in April as mergers and real-estate transactions increased.

India Car Sales Fall for 6th Month

In April, sales fell 10% from a year earlier to 150,789 cars, according to data issued Friday by the Society of Indian Automobile Manufacturers.

The decline is due partly to high ownership costs, SIAM Deputy Director General Sugato Sen said, referring to high interest rates and fuel prices.

India Factory Output Growth Accelerates

India’s industrial output rose for the third straight month in March, raising hopes that the economic slowdown may have ended and a gradual recovery could be under way.

The index of industrial production rose 2.5% from a year earlier, benefiting from a stronger expansion in manufacturing output, government data showed Friday. This followed a 0.5% expansion in February, as interest rate cuts from the central bank and government reforms so far this year have improved business confidence.

High five  India’s composite PMI fell from 51.4 in March to 50.5 in April…

Hong Kong Economy Grows Less-Than-Forecast 0.2% as China Slows

The increase from the previous three months compared with a revised 1.4 percent gain in the fourth quarter, the government said today.

China April New Yuan Loans, Money Supply Exceed Estimates

Lending was 792.9 billion yuan ($129 billion) in April, the People’s Bank of China said in Beijing. That compares with the median estimate of 755 billion yuan in a Bloomberg News survey and 1.06 trillion yuan in March. M2 money supply rose 16.1 percent from a year earlier, compared with the median economist forecast of 15.5 percent. Aggregate financing, a broader measure of credit, was 1.75 trillion yuan compared with a record 2.54 trillion yuan in March.

Lightning  Portugal and Greece joblessness hits highs
Greek unemployment among 16- to 24-year-olds reaches 64%

In Greece, the jobless rate hit 27 per cent in February, up from 26.7 per cent the month before, while the rate among 16-24 year-olds climbed to 64.2 per cent.

In Portugal, whose economy has been contracting sharply for three years, the jobless rate rose to 17.7 per cent in the first quarter of 2013, up from 16.9 per cent in the final three months of last year.

Italy’s One-Year Borrowing Costs Fall to Record Low at Auction

In Italy industrial production fell more than economists expected in March, indicating there is little sign the country’s longest recession in two decades is easing. Output decreased 0.8 percent from February, when it fell a revised 0.9 percent, national statistics office Istat said.

Storm cloud  U.K. Construction Output Declines to Lowest Since 1998

Output dropped 2.4 percent from the previous three months to its lowest since the fourth quarter of 1998, the Office for National Statistics in London said today.

Construction, which accounts for 6.8 percent of the economy, has been hit hard by government budget cuts and the credit famine. Output has fallen by about a fifth from its pre-recession peak five years ago, double the decline in manufacturing.

The fall in U.K. construction in the first quarter was led by a 3.2 percent drop in new work, with all sectors posting declines with the exception of private housing and repair and maintenance, the ONS said.


Fed Bridges Gap to Earnings Pickup in Modest U.S. Growth

(…) With modest economic growth weighing on results, revenue for companies in the Standard & Poor’s 500 Index has missed the aggregate analysts’ estimate by about 0.7 percent, according to data compiled by Bloomberg, even though earnings have been better than projected. Through yesterday, 452 of the benchmark-index members have reported for quarters ending between Feb. 16 and May 15. (…)



Punch  High Yield Rally Is Running Low on Fuel (Moody’s Capital Markets Research)

Our preferred measure of core business sales ― which equals the sales of retailers, manufacturers and wholesalers less sales of identifiable energy products ― rose by merely 3.0% yearly in Q1-2013, which was down from Q4-2012’s 3.5% and Q1-2012’s 6.2%.

The yearly increase previously ebbed to 3.0% in Q2-2008, Q4-2000, and Q3-1998, where each earlier deceleration was associated with a high yield bond spread significantly above its latest 410 bp. Thus, if expenditures do not quicken, what is now the narrowest high yield bond spread since October 16, 2007 could widen substantially. (Figure 2.)

The lackluster state of the world economy has curbed the growth of business sales. The US high yield bond spread has shown a strong inverse correlation with the JPMorgan/Markit global composite PMI index of world economic activity. Ordinarily, the high yield bond spread widens as the global composite PMI falls.

Nevertheless, despite how April 2013’s global composite PMI of 51.9 is well under its long-term median of 54.6, May 7’s high yield bond spread of 411 bp was well under its comparably measured median of 583 bp. Moreover, the statistical record suggests that the high yield spread ought to be closer to 700 bp, as opposed to approaching 400 bp. In fact, when the high yield spread last narrowed to 411 bp in December 2003, the global composite PMI approximated 60.0.




Notwithstanding both lackluster sales growth and the subpar pace of global activity, the recent high yield bond spread of 411 bp is very much consistent with the benign outlook for the US high yield default rate. (…)

Notwithstanding the subpar pace of business activity both domestically and globally, an abundant supply of financial liquidity will help to rein in defaults. Furthermore, until stocks are viewed as being significantly overvalued, the latest equity rally ought to enhance the business sector’s access to funds.



Punch  Martin Feldstein: The Federal Reserve’s Policy Dead End

(…) despite the Fed’s current purchases of $85 billion a month and an accumulation of more than $2 trillion of long-term assets, the economy is limping along with per capita gross domestic product rising at less than 1% a year. Although it is impossible to know what would happen without the central bank’s asset purchases, the data imply that very little increase in GDP can be attributed to the so-called portfolio-balance effect of the Fed’s actions. (…)

In short, it isn’t at all clear that the Fed’s long-term asset purchases have raised equity values as the portfolio balance theory predicted. Even if it did account for the entire rise in equity values, the increase in household equity wealth would have only a relatively small effect on consumer spending and GDP growth. (…)

Mr. Bernanke has emphasized that the use of unconventional monetary policy requires a cost-benefit analysis that compares the gains that quantitative easing can achieve with the risks of asset-price bubbles, future inflation, and the other potential effects of a rapidly growing Fed balance sheet. I think the risks are now clear and the benefits are doubtful. The time has come for the Fed to recognize that it cannot stimulate growth and that a stronger recovery must depend on fiscal actions and tax reform by the White House and Congress.

Thumbs down  Loonie to sink to 90 cents by early 2014: TD

Another major bank is forecasting a big drop in the Canadian dollar.

Toronto-Dominion Bank says the loonie, now at near par, will tumble to 90 cents by early next year, before recovering to 93 cents by the end of 2014.

The bank blames the loss of Canada’s “growth advantage,” lower commodity prices and the rebounding might of the U.S. dollar for the reversal.

(…) the report points to harder evidence: An economy that is expected to grow more slowly than the U.S. this year and next, lower prices for oil, base metals and precious metals, and a further rise of 4 to 5 per cent in the trade-weighted value of the U.S. dollar.


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